Optimal Interest Rate Smoothing under Model Ambiguity This paper solves for the equilibrium of a standard real business cycle model with money under model ambiguity. It first shows that monetary certainty is a sufficient condition for an interest rate smoothing rule to be optimal even under preferences for model robustness on the part of private agents. It then derives the necessary and sufficient condition for a stochastic (but stationary) monetary policy to reproduce the equilibrium of the real economy and compute the optimal (constant) level of the nominal interest rate. The condition implies a monetary policy conducted in such a way that the effects of shocks due to the randomness of the money growth rate on private agents' optimal consumption are nullified. More...